Monthly Archives: April 2012

IVG Convertible – follow up & quick balance sheet analysis

After my post from Friday, I got a lot of comments.

One major argument is that the non-payment of the interest is a signal of weakness on IVG’s side and that this will negatively impact IVG’s ability to conduct business and get capital in the future. Here I strongly disaggree. First of all, after the 100 mn plus loss in 2011, everyone should know already that IVG is in a relatively weak or distressed position anyway.

Both, for shareholders which had to come up with additional money and didn’t get dividends for the last few years, as well as for senior holders, it would have been a really bad sign if IVG would have continued paying the hybrid coupon. It should be pretty clear that IVG might need more equity capital in the future as well as more senior funding,so it doesn’t make sense to offend those two groups. However it is extremely unrealistic that IVG is able to issue hybrid capital or another unsecured senior bond at any point in the near future.

So from my point of view this move has increased IVG’s credibility with equity holders and senior creditors.

Most of the commnets were right to the extent that my assumption of IVG not going bankrupt in the nect two years is maybe not an overly convincing investment case if one cannot quantify the downside scenario (bankruptcy).

So let’s look into the annual report 2011 to get a feeling about the potential liquidation value of IVG.

IVG’s business activities can be divided into 4 areas:

1. Own real estate
IVG owns a potfolio of around 3.8 bn of real estate. They show 227 mn net rent income which translates into a 6.0% yield on assets. The portfolio is 87% Germany based with a large share located in the booming Munich and Hamburg regions.

6.0% yield sounds like a relatively reasonable yield for German prime office real estate. Maybe 7% would be more conservative.

2. Real estate developement
This is of course the “problem child”, generating ALL the losses for IVG. Developement assets are booked under “inventory” and amount to 1.0 bn EUR. Here I would take a 50% haircut to reflect the risk of the largest developement project, the “Squaire” project in Frankfurt.

3. Oil & Gas caverns
This is the “crown jewel” of IVG. Few people know this, but IVG used to be a Government owned company (“Industrie Verwaltungsgesellschaft”) and was IPOed in 1993. The Oil and Gas Cavern business is a remainder of the old “Industrial Administration” business. Basically IVG has the license to develope and build underground storage caverns for oil and more important for natural gas in Germany.

As one can imagine, with the nuclear energy exit, natural gas storage is a big issue.

Without a 1.4 bn sale of caverns in 2008 into a special fund, IVG would have been most likely bankrupt by then. As a consequence of the sale, IVG now is obliged to sell most of the caverns which they currently develop into the fund. However as they manage the fund themselves, they are of course in a relatively good position to realize a fair price for them. Additionally they earn some nice management fees from the cavern fund.

Current book values of Caverns (at cost) are 770 mn EUR, IVG estimates the market value being 325 mn EUR higher. As a conservative approach I would only take 50% of the markup into my valuation.

4. Third party property fund management

They have two divisions: Insittutional fund management with ~12 bn EUR under management which generated 18 mn EUR EBIT in 2011 and a private investor fund management unit which genrated -5 mn EBIT having 3 bn under management.

In my opinion, IVG could profit from the closure of the open ended Real estate funds because they never participated in this market.

I would value the third part Asset management at between 1-2% of Assets under Management, giving a valuation of 150 -300 mn or 275 mn as mid point.

Summary valuation of Assets

2011 Adj. Val Comment
Intangibles 251 0 100% write off
Inv. Property 3,964 3,398 scaled to 7% yield
PPE 157 118 25% discount
Financial Assets 189 142 25% discount
equity part 95 71 25% discount
DTA 404 0 100% write off
Receivables 60 45 25% discount
Inventory 1,025 513 50% discount
Receivables 179 134 25% discount
Cash 238 238 0% discount
AFS 341 256 25% discount
Asset Management   275 1.5% of AUM
Marekt value caverns   162.5 50% of disclosed adj.
Total 6,903 5,351

In this table I have applied the discussed adjustments plus 100% “write offs” on intangibles and DTAs as well as a 25% write-off on anything else than cash.

Based on this we get around 5.4 bn EUR “Net Asset” Value which should be a proxy for a liquidation value.

If wee look at the liability side, we can see that we have a total of 5.5 bn Liabilities including the convertible bond, therof 4.9 bn financial liabilites and 0.6 bn other liabilites (excluding the hybrid).

Interestingly, “only” 2.8 bn of the loans are “secured” loans. For the sake of simplicity, I assume that all other financial liabilites are “pari passu” in a liquidation.

This leads us for the following estimation of a “unsecured” recovery:

mn EUR
NAV 5,351
-secured 2,764
NAV for unsecured 2,587
unsecured 2,736
coverage unsecured 94.6%

Under my assumptions, the downside case for unsecured senior is around 95%. Howver this also means that in the case of bancruptcy, not only equity holders but also Hybrid holders get wiped out completely.

One final word to “comparable” situations, especially Pfleiderer which gets mentioned often internet boards:

The main difference to Pfleiderer is in my opnion the structure of creditors. At Pfleiderer, the banks sold the loans at large discounts to Hedgefunds. For those HEdgefunds, which maybe bought at 40-60 cents on the EUR, a quick bankruptcy is the best case, because then tehy can take possesion of the underlying assets and realize close to nominal value.

For IVG this is not true. At least to my knowledge, the IVG loans are held by banks at nominal value, so taking possesion of the underlying assets would not yield a direct profit, but would increase the required capital to be held on a bank balance sheet, which the banks cannot afford.

To cut it short: As soon as Hedgefunds enter the secured loans at a discount one has to watch out, but in a “normal” situation, going concern is in the interest of all parties (Management, Secured creditors, shareholders etc.).

Summary: In my opinion, the IVG convertible represents “good value” if my assumptions are correct. However it should (as any distressed situation in general) viewed as a risky asset. You don’t get 15% p.a. (at 79%) for nothing.

For the portfolio, I think it is an intersting diversification play, because as long as banks struggle, they will support IVG.

P.S.: Just a a funny coincidence, IVG reported today that they rented out one of their Hamburg propoerties to no one other than PRAKTIKER !!!!!

Book review: How to Make Money in Value Stocks (Stockopedia)

Dave from Stockopedia sent me a free copy of a new E-Book called ” How to Make Money in Value Stocks”

It is only 70 pages “short” and tries to introduce and summarize all relevant “schools” of value investing.

The book in my opinion is very well written. I liked especially the very “fluid” language, the very clear and easy to read layout and the many links they have at the end of each chapter.

I think its the perfect short book for anyone who wants to get a short well written overview on general value investing principles.


– it looks like that you get it for free if you register on their website. Then it’s great value. However I would not pay 14.99 GBPs what is announced to be the retail price for the book

EDIT: Dave from stockopedia just contacted me that there will be a Kindle Ebook edition for 4.99 GBP which seems to be a very reasonable price.

– the book in my opinion emphasizes a little too much what I would call “formula investing” as the best tool. However, they seem to offer value screens as a paid subscription service, so this makes sense from their perspective.

– They leave out the priciples and techniques of intrinsic valuation. This again is understandable from their perspective, however for anyone seriously interested in Value investing, I would definitely recommend to read for exapmle Prof. Greenwald’s books first.

Weekly links

Interesting free kindle EBook from Greg Speicher You have to register and then (maybe) get the book…should be worth a try.

Very short Cresud presentation. Written before the YPF nationalization.

Nate from Oddball has a very good write up on Gevelot, a super cheap French small cap.

Nice post from Stephan about Greek toy retailer Jumbo (German)

Gannon on “foreign” stocks (Non US). He even mentions on of my favourite stocks which I haven’t covered in the blog yet….

Prem Watsa likes Abiti Bowater a paper company.

Good analysis of Boyd Group, a North American collision repair chain.

IVG AG Convertible Bond (ISIN DE000A0LNA87) – Capital Structure considerations

The IVG Convertible bond is one of my “Special Situation” investments with a weight of ~2%. The bond is far out of the money, but has a bondholder call in 2014.

The bond has performed quite well, despite IVG showing a significant loss for 2011 at the end of March.

However, today the convertible bond got “hammered” because of the following news:

IVG has another bond outstanding, a subordinated bond. Yesterday IVG announced that following the loss (which they have already released and of March), they will not pay a coupon on the subordinated bond this year.

IVG Immobilien AG has resolved to suspend remuneration on the hybrid capital issued by the company (WKN: A0JQMH). The Board of Management bases its decision firstly on the discontinuation of dividend payments to the company’s shareholders since 2008 and the resulting equal treatment of the different equity investors. Secondly, the financial resources that consequently remain in the company can be used to further improve the capital structure.

The subordinated bond has a volume of 400 mn EUR (same as the convertible) and a coupon of 8%. This means IVG is saving 32 mn EUR by not paying the bond per annum.

Of course this is bad news for subordinated bond holders which seem to have expected further coupon payments:

What convertible bond holders seem to miss here is that this is actually positive news for all senior and secured creditors including the convertible bond holders.

Each EUR retained on the coupon from the subordinated bond increases the claim for the senior creditors and thus increases the intrinsic value of the senior creditors.

So instead of decreasing in value, the senior bond should have actually increased in value. At a price of 75%, the bond would theoretically yield 18.3% for the remaining two years.

For the portfolio I will increase the psoition up to a full position with a limit of 75% .

Quick check: Washtec AG (ISIN DE0007507501)

One reader sent me an email, asking why I don’t include new German stocks in my portfolio and recommended Washtec, the German manufacturer of car washing systems. According to his opinion, the business is not really impacted by business cycles and the stock might be cheap because of a “one time” write off last year.

As I havn’t looked at a German company for quite some time, I decided to have a “quick check” to see if it is an interesting stock and might fit into the portfolio.

If we look at last years “traditional” numbers, valuation seems Ok (apart from the loss) but not overly cheap (based on BB):

Market Cap 120 mn EUR
P/E: negativ (loss)
P/B: 1.7
P/S 0.4

In a second step, I always look at the history. I like the 1999-2011 period because it includes 2 booms and two crises:

1999 0.75 3.32 0.61 0.62 4.6665 24.0 10.8799
2000 0.35 2.94 0.61 0.51 14.0485 14.3 #N/A N/A
2001 0.18 4.40 0.37 0.00 10.7338 4.8 3.1974
2002 -1.54 2.80 0.08 1.58 9.2173 -42.9 #N/A N/A
2003 -1.98 0.79 0.08 0.02 9.1881 -110.3 #N/A N/A
2004 -0.35 0.44 0.00 2.73 6.5114 -57.0 -46.9692
2005 0.81 3.24 0.00 1.13 2.9122 35.4 22.6559
2006 0.82 4.06 0.00 0.50 3.5661 22.5 18.3614
2007 0.83 4.80 0.00 0.81 3.5641 18.7 14.7734
2008 1.03 5.66 0.00 1.38 3.3548 20.2 14.4405
2009 0.41 6.12 0.00 0.93 2.6462 7.0 6.2274
2010 0.77 6.75 0.12 1.44 1.9015 12.0 9.508
2011 -1.04 5.38 0.31 0.57 1.7454 -17.1 #N/A N/A

We can see pretty strong FCF generation, averaging 0.94 EUR a share, which is very very good.

However one can also see that

– FCF and especially earnings are relatively volatile and definitely impacted by business cycle
– only a small amount (~20% ) was paid out directly to shareholders via dividends
– the majority of the free cash flow seems to have been spent of a debt financed acquisition in 2000 and in subsequent debt repayments

They seemed to have made a relatively large capital increase in 2006 but bought back some of those shares in 2009. In their latest press release they committed to distribute at least 40% of “net results” to shareholders.

Interestingly, the company doesn’t seem to have a majority investor, which in theory should support the valuation as a potential take over might be possible.

The share is covered by 7 analysts, however only German ones so no big international coverage, with 4 buy and 3 neutral ratings, average target price is 10.82 EUR.

Looking at the chart, one can see that the past earnings volatility has shown itself in the stock price as well:

I took a quick look into the annual report 2011.

I am in no position to judge the business model, but it seems to be clear that there are big issues in the US where the seem to have totally miscalculated the market developement. Usually I try to avoid German companies with significant US operations as this usually doesn’t work out well.

Despite the “one off” issues, in general costs seem to have risen faster in 2011 than sales which might indicate only limited pricing power.

They seem to have an increasing share of service business, but the segment numbers are only shown along regions, not business lines. So I can not judge if the service business is really profitable or not.

Management compensation seems to be OK, they have only 2 board members. Bonus is linked to EPS. They don’t seem to own shares themselves nor do they have options.

Summary: My first impression would be that it is an interesting company but not screaming buy. The business still seems to be quite volatile with a big unresolved problem in the US. At current price level it is not a reversion to the mean play. Historically it is also hard to argue that the company has a moat in all of its markets based on the volatile past results.

I also don’t really like companies with periodical large “one offs”, this is usually a sign of strategy issues. Normally I only buy such companies if they are really cheap.

I would become more interested either if the valuation becomes cheaper (significantly below 6.5 x EV/EBITDA) or the US issue gets resolved pretty soon.

Argentina or how to adjust for Nationalization risk (Cresud edition)

And now to something completely different…

The story of the seizure of YPF, the Argentinian subsidiary of Repsol was on the news everywhere.

Accounting “Uber-guru” Aswath Damodaran had a great piece up yesterday about how to reflect Sovereign risk. He openly admits, not to have though too much about this issue before.

He brings up several possibilities to reflect this risk in intrinsic valuation, which are:

Option 1- Use a “higher required return or discount rate”:
Option 2: Reduce your “expected cash flows for risk of nationalization:

Option 3: Deal with the nationalization risk separately from your valuation: Since it is so difficult to adjust discount rates and cash flows for nationalization risk (or any other discrete risk), here is my preferred option.
Step 1: Value the company using conventional discounted cash flow models, with no increment in the discount rate or haircutting of the cash flows. The value that you get from the model will be your “going concern” value.
Step 2: Bring in the concerns you have about nationalization into two numbers: a probability that the firm will be nationalized and the proceeds that you will get if you are nationalized.
Value of operating assets = Value of assets from DCF (1 – Probability of nationalization) + Value of assets if nationalized (Probability of nationalization)

Intuitively I would also prefer option 3).

So let’s look at a real world example: Cresud

Cresud is an Argentinian company which according to Bloomberg

purchases and leases farms in Argentina’s Pampas region, and produces agricultural products. The Company cultivates grains including wheat, corn, soybeans, and sunflowers, raises beef and dairy cattle, and produces milk.

As one of the few “pure” agricultural plays and has traded ADRs, Cresud is a favourite of some very well known value investors like Fairfax and Monish Pabrai.

Now we can see what Damodoran described in “real world action”:

One US ADR reperesents 10 Argentinian shares.

As of yesterday, the US ADRs were traded at 10.90 USD, which would be 1.09 USD per share. The Argentinian shares were traded at 6 Argentinian Pesos which translate at the current rate of 4.40 ARS/USD into a price of 1.36 USD per share. A discount of around -25% for the foreign shares compared to the local shares.

If we look at the historical spread graph, we see that with the exception of the panic in 2008, the ADRs tracked the stock pretty well, so the current divergence definitley reflects Nationalization risk.

I have no idea if Cresud is in danger of being nationalised and if it is an interesting “special situation”, but it is still interesting to see how this one will turn out.

Quick updates: Praktiker, Total Produce and Vivendi


Praktiker just announced that they will delay the AGM until mid of June. The claim to be in “advanced talks” with capital providers and that they need some more time to prepare the necessary approvals from the AGM.

I am pretty sure, we will see a massive diluting capital increase exercise presented in the AGM. However, the Bond now is back into buying levels (<= 41%) and I will increase the position if possible to 2.5% of the portfolio.

Total Produce

Total produce has released its annual report. I have to dig deeper into the report at some point in time.


“Caque”, a French blogger has commented on yesterdays post. He has up a very very good post about Vivendi, including his personal experiences as a customer.

Also his original Vivendi post from 2011 is really worth a read. Seems to be a high quality blog to me and the only French one I know so far.

Quick check: Vivendi SA – Seth Klarman “Cigar butt”

I hate to admit it, but I am somehow a Seth Klarman “groupie” after reading his “margin of Safety” a couple of years ago.

So when ever Baupost reveals a new position, I stop everything else and try to find out why they did it (see my Microsoft analysis).

So I was quite surprised that Klarman now invested in Vivendi, the French media company.

In the hedge fund’s 2011 annual letter, they disclosed buys in private companies and mentioned recent purchases in Europe, without giving any names. The letter mentioned an expansion of the London office, as the hedge fund has been finding value due to large selling in Europe.

However, we have just discovered that Baupost’s largest disclosed equity holding (at least at the time of the purchase) was Vivendi SA (EPA:VIV) (VIV FP). The purchase was recently disclosed in Vivendi’s 2011 annual report.

Baupost owned 25.5 million shares as of February 29th, 2012; then worth close to $530 million using a ratio of 1.3:1 for euros to dollars. The $550million figure comes from looking at where Vivendi’s shares traded in 2011 and early 2012.

In the back of my mind I have always booked Vivendi as just another shitty media stock who spends all the money on stuopid acquisitions, however Klarman sticks to his strategy of buying cheap and struggling companies instead of “beautiful expensive” companies.

One of the reasons why they bought Vivendi are relatively clear: Vivendi generated a ton of free cashflow over the last few years. Some of this cashflow made it as dividend to investors, but most of this (plus some) went into acquisitions.

Lets look at some historical data:

EPS BV BV tang. FCF/Share Dvd net Debt/share
2002 -21.43 13.09 -19.68 0.49 1.15 11.55
2003 -1.07 11.13 -16.47 2.18 1.15 10.55
2004 2.57 14.40 -2.16 2.92 0.00 4.55
2005 2.66 16.27 0.50 2.14 0.60 3.25
2006 3.50 17.23 2.13 2.43 1.00 3.53
2007 2.26 17.47 -0.84 2.81 1.20 4.41
2008 2.23 19.34 -6.73 2.81 1.30 7.00
2009 0.69 17.92 -8.17 3.53 1.40 7.69
2010 1.78 19.44 -6.85 2.46 1.40 6.52
2011 2.16 15.61 -9.95 2.43 1.40 9.57
Sum/Delta       24.20 10.60 -1.98

From a free cashflow perspective, Vivendi generated an impressive 2,40 EUR free cashflow per year. Howver, less than half of it was distributed as dividend and a small amoutn was used to reduce debt.

Tangible book as one could expect for a media company is negative, but for a media company I would accept it to a certain extent. Debt is relatively high, but even including the debt load, the total valuation is quite low at 3.7 EV/EBITDA.

The share price looks really really ugly:

So based on yesterday’s post about momentum, this would be a clear “no” or better “non”.

Some more interesting points:

1. Vivendi does not have a majority owner

2. A couple of their subsidiaries are listed. That makes an interesting “sum of parts”:
– 61% in Activision are worth around 6.5 bn
– 53% of Maroc Telecom are worth around 5 bn EUR
A very simplistic comparison with Vivendi’s total marekt cap of 14 bn shows a maybe interesting situation.

3. Acquisitions:
– Vivdendi paid almost 8 bn EUR in 2011 for the 40% they did not own in its French Telecom subsidiary. However, after Iliad SA launched its aggressive enntrance into the French mobile market this amount was most likely much to high.

– in parallel, Vivendi is bidding for EMI and has bought several other companies, like a tv station for 350 mn EUR last year.

One has also to keep in mind that Klarman is managing around 25 bn USD, so the Vivendi position is for him a 2% postion, similar to News Corp, HP and BP. And not all of his invetsments are winners, despite the “Margin of Safety”.

I am howver not sure if the Iliad scenario was included in his “Margin of Safety” considerations.

Nevertheless it is very interesting situation as this is basically his first major contintental European Investment (despite a 5 mn EUR stake in a samll fFrench company named Chargeurs SA).

For the time being I nevertheless prefer to watch this from the outside as for me Vivendi is still a company which generates a lot of free cashflow but spends most of it for stupid acquisitions.

Trying to understand momentum from a value perspective

Momentum is one the concepts I really have some difficulties with. As a traditional value investor, one would basically ignore market movements and invest purely based on intrinsic value.

However if one looks at different reasearch papers, “momentum” seems to be an important indicator. For instance Tim du Toits latest research, momentum combined with value metrics created some astonishing results for the 1999-2011 period.

Also for example this article shows based on a back test that pure momentum trading strategies can produce theoretically 10 % p.a. outperformance.

Interestingly, the mentioned AQR US momentum fund isn’t really outperforming the indeces in real life. Bloomberg shows an underperformance of this momnetaum fund against all major US indices since inception in mid 2009.

Definition & application of momentum for grwoth stocks

I have been looking around a little bit, but there seem to be different definitions for “momentum”.

The more simple approaches seem to look at a trailing time period (1M, 6M, 1Y) and define momentum either as the best performance within a certain group of stocks (i.e. low P/B) or in general relative performance agains an index.

I have found this site where they give the following advice for “momentum growth stocks”:

One of the things to spot momentum stocks is the relative strength of the stock compared to the overall market over a specific timeframe. Most momentum investors seek at a stock which has outperformed at least 90% of all stocks over the past 12 months. When major indices declines, a great momentum stock exhibit strength by holding or even exceeding their highs. When the major indices rally, momentum stocks typically lead the rally and make new highs outpacing the market.

Potential momentum stocks should show in their balance sheet that they are growing at an accelerated rate.

Another factor is the Earnings per Share growth. At least a 15% year-over-year earnings per share growth is needed to qualify a momentum stock. Stocks with accelerating rates of EPS growth over previous quarters are also considered.

In addition, a positive forecast by at least some analysts regarding the Company’s earnings in necessary for identifying momentum stocks. Further, momentum investors also looks at whether the reported earnings exceeded the analysts forecasts compared to the last quarter.

A company can’t grow its earnings faster than its Return on Equity, which is the Company’s net income divided by the number of shares held by investors, without raising cash by borrowing or selling more shares. Many companies raise cash by issuing stock or borrowing, but both alternatives reduce earnings-per-share growth. For momentum investors, a potential stock should show an ROE of 17% or better.

This simple strategy at the moment is quite succesfull. If we look at two typical “MoMo” stocks Chipotle and LuluLemon we can see this in action. The “fundamental requirements” are clearly in place like this table shows:

EPS Growth   ROE  
  Chipotle Lululemon Chipotle Lululemon
2007 67% 292% 14% 41%
2008 11% 30% 13% 29%
2009 61% 34% 19% 30%
2010 42% 109% 24% 39%
2011 19% 49% 23% 37%

As one could expect, analysts go wild for both stocks and as for any respectable US comapny, earnings are ALWAYS above (carefully guided) expectations and of copurse both shares are in the top 10% performers.

And both stocks are still in their “parabolic” phase:

However, as my two “MoMo” short positions, Netflix and Green Mountain showed, once “Momentum” dissapears, those stocks can loose 50-80% of their value in the matter of a few days or weeks:

“Fundamentally”, momentum is usually explained the following way:

The capital market is not really efficient, so positive and negative information does not transform directly into securitiy prices but this takes some time.

However, in my opnion, there is also a “psychological” component for momentum:

Many investors prefer to see an immeadiate positive feedback on an investment decision. Even for myself, I tend to look more closely to daily or even intraday price movements when I just have bought a stock. With a “positive” momentum stock, there is a very high probability that the stock continuos to climb and you see direct positive feedback (and feel like an investing genius),

With a declining stock, on a short time horizon it is very likely to see a loss directly after buying the stock (and feel like an idiot for not waiting longer).

As an “intrinsic value” investor one should not care about the short term direction of stock prices, but never the less it still takes a lot of conviction to buy into a falling or underperforming stock.

The big question for me would be: Can momentum add value to an investment process based on intrinsic value ?

Intuitively I would say that extremely negative momentum could be a warning sign for a “value trap”. On the other hand, I can also see the argument for stocks where after a long decline some fundamental changes are occuring.

One of the stocks I have been tracking for a long time is Sto AG. Sto in the 90ties was one of the typical construction related stocks. After the reunification, prices of construction and construction related stocks exploded. However in the mid 90ties the boom went bust and construction stocks suffered. In the 2000s, then Sto could participate in the boom for energy saving, multiplying its earnings sevral times.

I did a very crude check on Sto with regard to relative performance: I compared annual returns with the dax since 1992 ( I diddn’t get earlier numbers). The result is quite surprising:

P/E EPS Last price 12m change DAX 12m Change Delta
1992 11.9 1.51 17.985      
1993 20.7 1.47 30.523 69.7% 46.7% 23.0%
1994 13.2 2.58 33.901 11.1% -7.1% 18.1%
1995 12.8 2.51 32.098 -5.3% 7.3% -12.6%
1996 18.0 1.83 32.915 2.5% 27.8% -25.2%
1997 14.1 2.12 29.927 -9.1% 47.1% -56.2%
1998 16.8 1.11 18.618 -37.8% 17.7% -55.5%
1999 12.0 1.69 20.32 9.1% 39.1% -30.0%
2000 13.2 1.39 18.342 -9.7% -7.5% -2.2%
2001 13.1 1.17 15.285 -16.7% -19.8% 3.1%
2002 7.6 1.27 9.71 -36.5% -43.9% 7.5%
2003 15.0 0.96 14.386 48.2% 37.1% 11.1%
2004 10.3 1.46 14.97 4.1% 7.3% -3.3%
2005 8.3 2.41 20.05 33.9% 27.1% 6.9%
2006 3.9 7.35 28.591 42.6% 22.0% 20.6%
2007 6.7 7.29 48.855 70.9% 22.3% 48.6%
2008 5.3 8.05 42.794 -12.4% -40.4% 28.0%
2009 7.1 8.60 61.057 42.7% 23.8% 18.8%
2010 10.3 8.98 92.17 51.0% 16.1% 34.9%

One can clearly see that once “negative momentum” occured in 1995, four subsequent years with strong underperformance followed. Sto shareholders basically missed the whole 90ties boom.

Then again the same happened in 2006: Once Sto really started to outperform, 4 more years of outperformance followed.

Another example: KSB

When we look at the same type of crude analysis, we see a less clear picture at KSB:

P/E EPS Last price 12m change DAX 12m Change Delta
1992 10.2 19.32 196.847      
1993 40.1 5.74 230.081 16.9% 46.7% -29.8%
1994 41.8 4.59 191.734 -16.7% -7.1% -9.6%
1995 #N/A N/A -18.82 121.687 -36.5% 7.3% -43.8%
1996 #N/A N/A -5.71 123.733 1.7% 27.8% -26.1%
1997 18.2 11.35 206.562 66.9% 47.1% 19.8%
1998 9.5 17.82 169.238 -18.1% 17.7% -35.8%
1999 18.9 5.92 112 -33.8% 39.1% -72.9%
2000 14.2 5.8354 82.98 -25.9% -7.5% -18.4%
2001 15.0 5.32 80 -3.6% -19.8% 16.2%
2002 8.4 8.65 73.09 -8.6% -43.9% 35.3%
2003 19.4 7 136 86.1% 37.1% 49.0%
2004 27.1 4.67 126.5 -7.0% 7.3% -14.3%
2005 25.9 5.85 151.43 19.7% 27.1% -7.4%
2006 13.4 27.99 375 147.6% 22.0% 125.7%
2007 10.3 43.86 450.06 20.0% 22.3% -2.3%
2008 5.1 70.17 360 -20.0% -40.4% 20.4%
2009 6.7 61.32 409 13.6% 23.8% -10.2%
2010 14.0 44.09 618 51.1% 16.1% 35.0%
2011 11.0623 40.95 453 -26.7% -14.7% -12.0%

For the first 4 years, momentum would have worked but in 1997, momentum would have failed us. However in the subsequent years momentum might have worked OK, although one would have missed the big jump in 2006.

Let’s finally look at one of the “true hidden champions”, Fuchs Petrolub which I regret deeply not to have bought in the past:

P/E EPS Last price 12m change DAX 12m Change Delta
1992 23.0 0.10 2.414      
1993 27.3 0.13 3.46 43.3% 46.7% -3.4%
1994 23.3 0.17 3.848 11.2% -7.1% 18.3%
1995 34.2 0.08 2.869 -25.4% 7.3% -32.8%
1996 21.6 0.14 3.123 8.9% 27.8% -18.9%
1997 13.0 0.27 3.544 13.5% 47.1% -33.6%
1998 44.6 0.07 2.92 -17.6% 17.7% -35.3%
1999 9.2 0.22 2.03 -30.5% 39.1% -69.6%
2000 8.4 0.234 1.964 -3.3% -7.5% 4.3%
2001 19.9 0.1089 2.162 10.1% -19.8% 29.9%
2002 7.3 0.3207 2.327 7.6% -43.9% 51.6%
2003 11.6 0.4152 4.816 107.0% 37.1% 69.9%
2004 17.4 0.4919 8.564 77.8% 7.3% 70.5%
2005 11.3 0.9394 10.57 23.4% 27.1% -3.6%
2006 13.8 1.2413 17.163 62.4% 22.0% 40.4%
2007 13.5 1.5517 20.983 22.3% 22.3% 0.0%
2008 8.7 1.4867 12.943 -38.3% -40.4% 2.1%
2009 11.9 1.70 20.217 56.2% 23.8% 32.4%
2010 13.7 2.39 32.9 62.7% 16.1% 46.7%
2011 11.7637 2.56 30.115 -8.5% -14.7% 6.2%

Again we can see here longer stretches of under- and outperformance which clearly seem to imply some kind of momentum, persisting at least for some 4-5 years in this example.

Summary: Momentum is something which is is usually not connected to intrinsic value investing but with growth investing. However, some recent studies show that momentum also seems to be a factor in “value” stocks. A crude test with three examples from my long term “circle of comeptence” shows some anecdotical evidence for momentum in stock prices of “normal” companies and even “value companies”.

So this is definitely something to include in the investment process as additional aspect.

Edit: There is acutally a new Dilbert out referring to “momentum”:

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